A Welcome SEC Focus on Fund Proxy Modernization
For millions of Americans, mutual funds and ETFs are the foundation of long-term financial security. They help families save for retirement, education, homeownership, and other major goals. But behind the scenes, these same investors are often bearing the extraordinary costs of an outdated fund proxy system that no longer reflects how funds are owned, how investors communicate, or how shareholders choose to engage with their funds.
Fund proxy campaigns are difficult because many proxy items require participation by a majority of outstanding shares, even when they are non-controversial. At the same time, most fund shareholders are retail investors who hold shares through intermediaries, making it challenging for funds to identify and communicate with them directly. As a result, reaching these shareholders and soliciting their votes can become a costly exercise.
The problem is not that fund shareholders are rejecting proposals. Usually, the opposite is true. When shareholders vote, they often overwhelmingly support fund proposals. But low retail investor participation can still force funds to spend extraordinary time and money simply trying to reach the required quorum. Everyday investors end up paying for repeated mailings, phone calls, emails, adjourned meetings, and prolonged solicitation campaigns, often for matters that investors view as technical, routine, or already entrusted to professional oversight. ICI’s recent report, Confronting the Growing Burden of Fund Proxy Campaigns, conservatively estimated that fund proxy campaign costs totaled between $675 million and $1.14 billion from 2020 to 2025.
SEC action is critically important. This week, we saw an encouraging step, as the SEC Investor Advisory Committee (IAC)—the committee established and authorized by Congress to submit findings and recommendations on investor-related interests to the Commissioners of the SEC—put forth recommendations that, if the SEC adopted, would preserve investor protections while reducing unnecessary costs, friction, and frustration of the current fund proxy problem. ICI has urged the SEC to address this issue, and we’re encouraged to see the IAC putting this issue before the Commissioners for serious attention as well.
The Committee’s recommendations track ICI’s recommendations for open-end funds. They focus on practical reforms, including better shareholder communication, more investor-friendly proxy materials, retail voting programs, and an alternative approval pathway that could pair a lower quorum threshold with a higher affirmative vote requirement. These reforms would better align the fund proxy voting process with today’s fund marketplace and investor behavior and preferences.
As ICI General Counsel Paul Cellupica wrote earlier this year in The Financial Times, the fund proxy system was created for a very different era, one defined by paper mail, direct ownership, and a much smaller fund shareholder base. The system should continue to focus on investor protection, and it should not force investors to pay for a costly, outdated ritual that doesn’t benefit them.
Modernizing the fund proxy system would help funds—and most importantly, it would help the millions of investors who rely on them to build their financial futures. ICI, and now the SEC’s own Investor Advisory Committee, have provided a clear, pro-investor roadmap for the Atkins SEC to follow without delay.